First seen as a formal business strategy in 1989, outsourcing is now the common process of hiring third parties to conduct services that were typically performed by the company. It is now a common practice. The benefits of outsourcing can be substantial – from cost savings and efficiency gains to greater competitive advantage.
On the other hand, loss of control over the outsourced function is often a potential business risk. You should carefully consider the advantages and disadvantages of outsourcing before deciding to contract out any activities or business operations. I would advise however that you outsource some HRM functions, especially when you as the CEO does not have much of an idea about HRM.
There are many advantages to outsourcing and they are good reasons why a business should outsource. The following are some of them.
Outsourcing can free up your business to focus on its strengths, allowing your staff to concentrate on their main tasks and on future strategy. For example, outsourcing an HRM assistant out helps the Head of the HR team focus on more strategic things like planning and change management.
Choosing an outsourcing company that specialises in the process or service you want them to carry out for you can help you achieve a more productive, efficient service, often of greater quality.
Cost savings achieved by outsourcing can help you release capital for investment in other areas of your business. For example, the cost of staff and all the other payments that go with that like medical, pension, tax. Also, the cost of absence and even disengagement.
Outsourcing can give you access to capabilities and facilities otherwise not accessible or affordable. When you are outsourcing from professionals who do the function outside your company.
The outsourced staff will come with great skills that you would otherwise not be able to afford if you recruited directly. This will also help you leverage that external knowledge and skills along with your complete supply chain.
Outsourcing can make your business more flexible and agile, able to adapt to changing market conditions and challenges while providing cost savings and service level improvements. Your company does not have to acquire those skills which can be resource-consuming and then the people can leave with all the skills, leaving you high and dry.
Read also: Human resource information systems
There are some outsourcing disadvantages, and it will not be fair not to share that with you. This is because it involves handing over direct control over a business function or process to a third party and this can be risky in some areas.
There may be issues with service delivery, which may fall behind time or below expectation. However, if you are convinced of the advantages you can ask for a better resource or change outsourcing company.
Confidentiality and security may be at risk but again you can take care of this by putting the correct systems in place before the outsourcing starts. There may also be a lack of flexibility. The contract could prove too rigid to accommodate change, again now you know there is this probability, you can mitigate against it upfront.
There is also the possibility of management difficulties because of changes at the outsourcing company could lead to friction. Also, there can be instability that is the outsourcing company could go out of business. These are both real issues, but you can mitigate against this. Identify at least three companies you can outsource to, such that if push comes to shove, you can make a switch.
Offshore outsourcing (like outsourcing to India), although potentially more cost-effective, may present additional challenges such as hidden costs of provider selection or handover, severance and costs related to layoffs of local employees who will not be relocated internationally for example. Even simply managing the offshore relationship can prove challenging due to time zones, different languages, or cultural preferences.
Like other business decisions, outsourcing requires careful planning and consideration. Ensure you have carefully examined a wide range of possible issues.
Most of the complexities associated with outsourcing fall into five broad categories. There can be productivity issues for example it can fluctuate and doesn’t always match that of internal staff.
There is also communication both ways, for example lack of good communication strategies can cause errors, delays and lower productivity. There can be culture issues for example a lack of cross-cultural understanding can lead to miscommunication.
There can also be a case of organisational readiness whereby because of weaknesses in own internal systems, processes the outsourcing does not work well.
All in all, in my opinion, outsourcing some functions are a much better option than going through all the challenges of doing those function in-house.
I am sure this has helped. We all should be looking at making our organisations lean and mean.
Have a good weekend.
